Monday, April 23, 2012

Mining accounts for less than 1% of Kenya's annual GDP, however, recently gold mining companies have expressed great interest in exploring the western part of Kenya. Iron ore is mined from small localised deposits for use in the domestic manufacturing of cement. Following global oil price increases, Kenya has been faced with an energy crisis which has led to an increase in exploration activities for oil and gas reserves in the coastal and semi-arid parts of Kenya.

The Ministry of Environment and Natural Resources (the “Ministry”) is responsible for mining in Kenya. Kenya is in the process of revising its Mining Act (the “Act”) which dates back to 1940 and is in dire need of improvement. The transition into a new Constitution in Kenya has stalled enactment of the proposed Mining Bill.

The Kenya Chamber of Mines (“KCM”) is the Ministry’s body which regulates mining in Kenya. The Act confers wide discretionary powers on the Commissioner of Mines and Geology (the “Commissioner”) and the overriding principle under the Act is that ownership of extracted minerals vests in the Government which has the right to determine who will engage in prospecting and mining activities. The Commissioner may give various rights and licences to individuals or entities proposing to engage in prospecting and mining. These include prospecting rights, special licences, exclusive prospecting licences, rights to register locations and mining leases.

Coulson Harney Advocates has recently been involved in advising Australian mining firms in relation to proposed joint ventures with companies holding existing mining and exploration licences in Kenya. As part of our engagement, we provided:

  • legal advice in relation to the Act and its subsidiary legislation;
  • legal advice on the establishment of operations in Kenya;
  • due diligence reports in relation to existing permits, licences and compliance with the Act; and
  • advice on proposed joint venture agreements and Kenya specific requirements.
  • Challenges and processes that face mining companies in Kenya include the following:
  • Prior to exploration or mining activities, all investors (local and foreign) must conduct an environmental impact assessment (“EIA”) on the proposed area regulated by the National Environmental Management Authority (“NEMA”). NEMA has the power to approve the project, dispense with the need for an EIA or require the investor undertake certain activities to conserve the environment.
  • Mining within a forest requires approval from the Kenya Forest Service (“KFS”).
  • Local authorities in Kenya are empowered to prohibit or control the development or use of land and in certain situations will only grant permission upon provision of a certificate of compliance which is obtained under the Physical Planning Act.
  • Despite obtaining all necessary licences under the Act, mining companies must obtain surface rights from affected land owners before entering their properties to conduct exploration or mining activities. This can be difficult given the high population and high rates of illiteracy in the areas in which mining or exploration activities occur.
  • All geologists, whether or not working as employees of a mining company, must be registered by the Geologists Registration Board (“the Board”).
    There are fairly extensive requirements that must be fulfilled in order for a geologist to be registered by the Board.
  • Once a company holds a licence granted under the Act, there is an ongoing requirement to furnish the Commissioner with certain information.
  • The Immigration Act requires that foreigners working in Kenya obtain relevant entry permits. There are a number of classes of entry permits available and obtaining such permits usually takes between 6 weeks and 6 months.

The Kenya Investment Authority (“KIA”) is mandated with promoting investment in Kenya. Currently, foreign investors (granted an Investment Certificate) are entitled to:

  • three work permits for employees and three for directors of the company;
  • VAT and customs duty exemption on equipment and machinery;
  • a tax holiday if total disclosure is made in the annual financial reports and various conditions met.

Foreign investors qualify for an Investment Certificate if they plan on injecting a minimum investment of US$ 100,000. In evaluating the investment, KIA would ordinarily look at the cost of machinery, equipment and bank statements. There are no application fees and the certification procedure takes between one week and a month.

As a former British colony, Kenya’s system of laws is easily understood by Australian investors. In addition, because the common law applies here, the Kenyan courts regard judgments of the English and Australian courts to be of persuasive authority. For these reasons, Kenya is attractive to Australian mining companies.

Mining is an increasingly important part of Coulson Harney’s practice and we look forward to being a part of this exciting period in Kenya’s history.

Rainbow Field is a lawyer at Coulson Harney Advocates